7-8On January 1, 2010, Peine Company acquired an 80% interest in the common stock of Stine Company on the open market for $3,000,000, the book value at that date.

On January 1, 2011, Peine Company purchased new equipment for $58,000 from Stine Company. The equipment cost $36,000 and had an estimated life of five years as of January 1, 2011.

During 2012, Peine Company had merchandise sales to Stine Company of $400,000; the merchandise was priced at 25% above Peine Company’s cost. Stine Company still owes Peine Company $70,000 on open account and has 20% of this merchandise in inventory at December 31, 2012. At the beginning of 2012, Stine Company had in inventory $100,000 of merchandise purchased in the previous period from Peine Company.

Required:

A.Prepare all workpaper entries necessary to eliminate the effects of the intercompany sales on the consolidated financial statements for the year ended December 31, 2012.

B.Assume that Stine Company reports net income of $160,000 for the year ended December 31, 2012. Calculate the amount of noncontrolling interest to be deducted from consolidated income in the consolidated income statement for the year ended December 31, 2012.

Short Answer

1.When there have been intercompany sales of depreciable property, workpaper entries are necessary to accomplish several financial reporting objectives. Identify three of these financial reporting objectives for depreciable property.

2.An eliminating entry is needed to adjust the consolidated financial statements when the purchasing affiliate sells a depreciable asset that was acquired from another affiliate. Describe the necessary eliminating entry.